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I'm the author. Most public investors look at these companies on a forward revenue multiple because the vast majority of these companies don't generate positive

I'm the author. Most public investors look at these companies on a forward revenue multiple because the vast majority of these companies don't generate positive earnings.

sokoloff 5y ago
Thanks. Edited to correct earnings to revenue.
mbesto 5y ago
> don't generate positive earnings. Or more appropriately, DCF: “What matters always is dollar margins: the actual dollar amount. Companies are valued not on their percentage margins, but on how many dollars they actually make, and a multiple of that.” https://25iq.com/2014/04/26/a-dozen-things-i-have-learned-from-jeff-bezos/ https://25iq.com/2014/04/26/a-dozen-things-i-have-learned-fr... What other business model do you know that can produce this type of FCF trajectory? https://www.macrotrends.net/stocks/charts/AMZN/amazon/free-cash-flow https://www.macrotrends.net/stocks/charts/AMZN/amazon/free-c... https://www.macrotrends.net/stocks/charts/GOOGL/alphabet/free-cash-flow https://www.macrotrends.net/stocks/charts/GOOGL/alphabet/fre... https://www.macrotrends.net/stocks/charts/FB/meta-platforms/free-cash-flow https://www.macrotrends.net/stocks/charts/FB/meta-platforms/...
- ttunguz 5y ago
  No doubt he built a sensational business focused on cash flows. A lot of the software companies generate significant cash flows because they start to collect multi-year upfront payments for their software. Some of them call them remaining purchases obligations which you can find in the 10ks and annual reports. But the market broadly doesn't look at this today. Maybe at some point in the future though
  - mbesto 5y ago
    > No doubt he built a sensational business focused on cash flows. Look at the largest companies across all of the holdings in $VGT - the story is all the same - DCF rules everything. > A lot of the software companies generate significant cash flows because they start to collect multi-year upfront payments for their software. Sure, SaaS B2B software may do this (like many of the companies you invest in), but this doesn't explain GOOGL/FB though? AFAIK, most of their ad payments (which are their cash cows) are monthly payments (i.e. even for a $1M annual google ad spend which I managed years ago followed a monthly payment schedule). > Maybe at some point in the future though I'd argue this is already happening. VC revenue multiples and revenue trajectories are just a proxy for DCF. As long as the company's unit economics can support ~80% GM and growth rates are high the company has a strong DCF potential.

I'm the author. Most public investors look at these companies on a forward revenue multiple because the vast majority of these companies don't generate positive earnings.

sokoloff 5y ago

Thanks. Edited to correct earnings to revenue.

mbesto 5y ago

> don't generate positive earnings. Or more appropriately, DCF: “What matters always is dollar margins: the actual dollar amount. Companies are valued not on their percentage margins, but on how many dollars they actually make, and a multiple of that.” https://25iq.com/2014/04/26/a-dozen-things-i-have-learned-from-jeff-bezos/ https://25iq.com/2014/04/26/a-dozen-things-i-have-learned-fr... What other business model do you know that can produce this type of FCF trajectory? https://www.macrotrends.net/stocks/charts/AMZN/amazon/free-cash-flow https://www.macrotrends.net/stocks/charts/AMZN/amazon/free-c... https://www.macrotrends.net/stocks/charts/GOOGL/alphabet/free-cash-flow https://www.macrotrends.net/stocks/charts/GOOGL/alphabet/fre... https://www.macrotrends.net/stocks/charts/FB/meta-platforms/free-cash-flow https://www.macrotrends.net/stocks/charts/FB/meta-platforms/...

ttunguz 5y ago
No doubt he built a sensational business focused on cash flows. A lot of the software companies generate significant cash flows because they start to collect multi-year upfront payments for their software. Some of them call them remaining purchases obligations which you can find in the 10ks and annual reports. But the market broadly doesn't look at this today. Maybe at some point in the future though
- mbesto 5y ago
  > No doubt he built a sensational business focused on cash flows. Look at the largest companies across all of the holdings in $VGT - the story is all the same - DCF rules everything. > A lot of the software companies generate significant cash flows because they start to collect multi-year upfront payments for their software. Sure, SaaS B2B software may do this (like many of the companies you invest in), but this doesn't explain GOOGL/FB though? AFAIK, most of their ad payments (which are their cash cows) are monthly payments (i.e. even for a $1M annual google ad spend which I managed years ago followed a monthly payment schedule). > Maybe at some point in the future though I'd argue this is already happening. VC revenue multiples and revenue trajectories are just a proxy for DCF. As long as the company's unit economics can support ~80% GM and growth rates are high the company has a strong DCF potential.